More noise, more rotation, trend remains intact

WOW. Look at that!

Stocks had a rough session — at least if you believe the headlines.

CNBC breathlessly told us the Dow “suffered its worst loss since November.” Sounds ominous… until you add context. Yes, the Dow fell 466 pts, or 1.9% — but it’s still UP 8.7% since those so-called “tough November days.” Perspective matters. Elsewhere, the S&P slipped 24 pts, the Russell lost 7, Transports fell 171 pts (1%), and the Equal-Weight S&P dropped 98 pts (1.1%). Meanwhile — and this is the part that matters — the Nasdaq and the Mag 7, which have been under pressure for weeks, actually rose, gaining 37 pts and 81 pts respectively.

Again – this is just more rotation – traders and algo’s finding some of the beaten up tech names interesting so they took some profits in those sectors that have been powering us higher – we defined those yesterday morning and in fact those were the sectors that got sold – think Industrials, Basic Materials, Financials, SMIDS, Utilities etc. I say traders and algo’s because long term investors do not react or act like that at all.

Now it was the mixed ADP report, ISM Services report and JOLTS reports that ultimately ended up causing the angst…the ADP report came in at 41k – expectations were all over the place – estimates ranged from 43k – 53k, the Bloomberg estimate had it at 50k – so it looks like a weak report – the media jumping on it as a ‘sluggish’ momentum going into the new year. In addition – the ISM Service Index (separate from the S&P Services PMI) came in at 54.4 and that was stronger than expected – suggesting that the services sector of our economy remains in EXPANSIONARY territory.

And the Services prices paid data point – well I beat that to death in yesterday’s note – it came in at 64.3 – lower than the estimate and lower than last month and that’s good, BUT it still remains in the ‘inflation pressure is accelerating’ band…. Yes, you can argue it is coming in and that is true, but it’s not coming in fast enough to demand more aggressive rate cuts (in my opinion).

At 10 am – we got the JOLTS report – Job Openings and Labor Turnover Survey – and it reported ‘conflicting data’. Openings came in weaker at only 7.14 million job openings vs. the expectation of 7.64 million while the Quit Rate rose by 171k coming in at 3.16 million vs. the expected 2.99 million. Ok, what does it really mean?

Yesterday’s weaker-than-expected Job Openings and Labor Turnover Survey (JOLTS) signals that labor demand is cooling without cracking. Job openings are drifting lower, suggesting employers are becoming more deliberate about hiring rather than resorting to layoffs — a development that helps ease wage pressure and reduces inflation risk. However, a rising quits rate appears to be in conflict with that narrative.

Why? Because when workers quit, it generally means one of two things: they are retiring (which is economically neutral), or they have found — or believe they can find — something better. The survey doesn’t distinguish motivations; it simply reports quits. But historically, a rising quits rate is one of the clearest indicators of worker confidence. People don’t voluntarily leave jobs unless they are confident in their ability to secure higher pay, better benefits, improved flexibility, or superior opportunities.

This dynamic is especially visible in high-demand sectors. Employees at firms such as BlackRock, Blackstone, Accenture, McKinsey & Company, and Boston Consulting Group — particularly those tied to AI, cybersecurity, and data-center buildouts — are being actively recruited by startups and private companies in later-stage (D, E, and F) funding rounds. These moves are often accompanied by meaningful pay increases and equity participation tied to potential IPOs, making the decision to leave established employers far more compelling.

From a market and Federal Reserve perspective, this creates tension. Cooling job openings suggest employers are growing more cautious, but rising quits imply that workers still have leverage — and that wage pressures may persist. Employers must either raise pay to retain talent or accept higher turnover, but in both cases, compensation costs rise, feeding directly into services inflation. That is precisely why the Fed watches JOLTS so closely: it provides a real-time read on labor tightness and pricing power — not just headline employment.

In the end – the thesis is confusing…. job openings say “cooling,” quits say “confidence.” That tension matters — and it explains why the labor market can be easing without fully relieving inflation pressure.

Now – the naysayers and the ones pushing for further cuts were quick to jump on the bandwagon – but clearly missed the point…. – Elias Haddad – Global Head of Market Strategy at Brown Brothers Harriman had this to say –

“Further declines in the JOLTS hiring and quit rates would add to signs of worsening labor demand and would validate the 50 bps of cuts priced into the fed fund futures over 2026” ….

Let me repeat - the Quits rate did NOT decline – he must have skipped over that part of the report!

Next - we got a barrage of geopolitical headlines — most notably the oil-related developments involving Venezuela, where the U.S. now effectively controls the whole shebang – all 300 billion barrels. Then came the predictable accusations of “bullying” from none other than Xi Xi — which, frankly, borders on comical. The Venezuela move didn’t just make headlines; it pulled the rug out from under China, undercutting Beijing’s leverage in the region and exposing how limited Xi Xi’s position really is in this moment.

In addition, Donny escalated the rhetoric on two domestic fronts. First, he publicly warned Aerospace & Defense companies not to raise dividends, execute buybacks, or pay CEOs more than $5 million until they materially ramp production of depleted U.S. artillery and defense stockpiles — a clear signal that capital returns are secondary to national security. At the same time, he announced steps his administration says it is taking to ban large institutional investors from purchasing additional single-family homes, framing the move as an effort to improve housing affordability. Writing on Truth Social, he put it bluntly: “People live in homes, not corporations.”

Markets reacted accordingly. Aerospace & Defense ETFs sold off, XAR – 1.3% while the ITA lost 1.6%. Individual names took it a bit harder - LMT fell 4.8%, NOC dropped 5.5%, RTX slid 2.4%, and GE Aerospace lost 1.2%.

Housing-linked institutions were also pressured. BLK, BX & INVH, all major buyers of single-family homes during the GFC, buying properties for pennies on the dollar (some will describe it as ‘deep discounts’) and converting to expensive rental inventory — fell 3.3%, 5.5%, & 6% respectively.

Other than that – what we saw yesterday was just more churn – it did not define a change in trend at all.

Bonds rose the TLT + 0.6%, while the TLH +0.5%. The 10-yr yielding 4.16% while the 30 yr is yielding 4.84%. Nothing to really see here.

Oil continues to trade in the range we have defined. $55/$58.60. This morning it is trading up 90 cts at $56.85. Nothing new to detail.

Gold is also just churning…..Yesterday morning it was trading at $4,465 and this morning it is trading at $4,420. And?

We remain firmly within the range we’ve been discussing for weeks: trendline support near $4,200 with upside resistance around $4,550.

The VIX continues to remain in the complacent zone – up a bit off the recent low, but still below any level suggesting anxiety or nervousness.

European markets are slightly negative – all down about 0.2% or less. European defense stocks are enjoying another UP day on the ongoing rhetoric around Greenland, Denmark and the US. Recall what I said yesterday – we need to be talking to Denmark about partnering up, not ‘acquiring’ them. Come on.

U.S. futures are under renewed pressure this morning. The Dow is down 195 points, the S&P off 15, the Nasdaq lower by 88, and the Russell down 12. So yes — Dow 50,000 or S&P 7,000 isn’t happening this week.

There’s a lot of noise out there right now, and noise creates short-term chaos that inevitably gets priced into stocks. That doesn’t signal panic — it simply means investors are pausing to breathe while they assess the scope of the headlines. And next week brings more potential noise as Q4 earnings season kicks off. Expectations are high, but markets don’t trade on expectations alone — they trade on reactions, and increasingly on how the algos read the headlines. That’s why, for now, I’d sit tight with any available cash and let this play out. You’re already invested — you’re not missing anything — and there’s always time to put cash to work once the dust settles.

The S&P 500 closed yesterday at 6,920, down 23 points, and continued to meet real resistance near the all-time highs at 6,945. Don’t be surprised if we test a bit lower — trendline support sits near 6,815 as we head into earnings. Tomorrow’s NFP report is the next potential catalyst. I expect it to come in roughly as expected, but if it prints weaker, markets may use that as an excuse to lean lower — simply because they can.

In the end – Stay disciplined. Stay focused, Stick to your plan and don’t get drawn in the fray.

Creamy Basil pesto tubettini

MMM….so good.

For this you need: 1 lb. of Tubettini pasta, garlic, Olive Oil, Homemade basil pesto (you can buy it if you want), chicken stock, s&p, heavy cream (you can use ½ & ½), and fresh mozzarella ciliegine (the small cherry sized mozz balls).

Start by heating up a splash of olive oil in a large sauté pan. Add the crushed garlic and sauté for 3 or 4 mins.

Now – add in the dry pasta to the sauté pan. Mix with the oil and garlic until coated. Now add enough chicken stock to cover the pasta, bring to a slow boil and allow the pasta to cook directly in the sauté pan. (keep your eyes on it, you may need to add a bit more stock).

Once the pasta is cooked – about 7 or 8 mins – it should have sucked up most of the stock – it should not be soupy, but it should also not be dry at all. Add in about ½ cup of heavy cream, season with s&p. Stir to mix.

Now take it off the heat. Add in 2 tablespoons of the pesto and mix well. It should be nice and creamy – not soupy.

When serving – top with 3 or 4 ciliegine and of course always have extra parmegiana cheese on the table.